Freaky Friday Potpourri: For Whom the Bell Tolls
Price validates news with a forward-looking lens
"And the Colorado rocky mountain high, I've seen it raining fire in the sky I know he'd be a poorer man if he never saw an eagle fly, Rocky mountain high"
- John Denver
Alright, here's the situation, I'm about to go away on a week's vacation. That's shaping my risk appetite differently than what it otherwise might, which would stay true to the view that NASDAQ 2000-drawn with a crayon rather than a pencil-is resistance until proven otherwise.
I've employed 2% stops on initiated risk and traded the set-up numerous times the last few weeks. It has worked, as well as trading from the short side could work in an incessantly optimistic environment, as I've managed to pick up some dimes in front of the bulldozer.
Yesterday, with the NASDAQ down 30 handles in mid-morning trade, I punted half my puts with one eye on discipline and the other cast towards Colorado. I had my remaining exposure cued up for sale but decided to sit tight, trade light and watch the tape digest the sudden supply.
Fast forward a few hours, which included editing the next two chapters of Memoirs and scooting downtown to sniff some new digs as MVHQ is busting at the seams. I returned to my turret to find the market flat, erasing the entire decline and lending credence to the popular perception that The Market Will Never Go Down Again.
Overnight, the tech tape got a double dose of good news. Dell (DELL) reported an uptick in sales from earlier this year and offered signs that the personal computer market is beginning to recover. This morning, Intel (INTC) raised third quarter revenue forecast citing strong demand for it's chips, lifting the range to $8.8 billion to $9.2 billion vs. prior estimates of $8.1 billion to $8.9 billion.
Yesterday we noted the potential for a slight shift in the market tenor when we said:
"…for the second day in a row, economic numbers came in better than expected and the market put some stank on it. The reaction to news is always more important than the news itself and while there's a long time left in the session, the shift in tenor is noteworthy."
Immediately following the Intel news, the NASDAQ futures jumped from a 7-point gain to a 22-point sprint. Given the proximity of our aforementioned "fish or cut bait" tech level, we must respect the potential for a breakout, particularly given the skeletal ranks smack dab in the middle of the dog days of August.
However, there's another scenario that warrants attention, the potential that this one-two tech punch will be the cherry atop the "news is always worst at the bottom and best at the top." Given the recent action-which has been fantabulous-that's the last thing on many people's mind, which is precisely why it could indeed come to bear.
To that end, Professor Jeff Cooper notes this morning that the bearish "Three Peaks and a Domed House" pattern may come into play (stay tuned for his report) and the sage Mr. Practical-who wrote a column yesterday that should be required reading for all Americans-weighed in with:
"31% of Dell sales growth was from government and we must remember that Dell buys Intel chips; now Intel raises guidance. Government spending is almost 50% of GDP now; china is only 35%. Few are discussing why these companies are making revenue expectations and whether they'll indeed prove sustainable."
Price is the ultimate arbiter of our financial fate and there is only one right answer; the one validated by the bottom line. We've recently discussed that S&P 1120 is to the old school what NASDAQ 2000ish is to the four-letter freaks-the downtrend line from the 2007 top and a precise 50% retracement of the entire slide lower.
That remains a viable scenario within the probability spectrum. However, as I recently offered on Techticker-here, here and here-there are unintended consequences for a market artificially sweetened by outside influences.
How or, more importantly when it manifests remains to be seen but it would be myopic to ignore the why and simply focus on the what.
For my part, I faded (read: initiated fresh shorts) into the opening circle smirk with tight stops in place and plans for risk reduction into my vacation. I'll walk through the process on the Buzz & Banter, as we do each day, and take each step as it comes while focusing on solid strides.
As an aside and before I scoot, I would be remiss if I didn't take a moment to say thanks to ye faithful for the continued support of the Minyanville community. With 10,000,000 page views last month, it's clear that our editorial ethos of truth and trust and core foundational constructs of honesty, trust and respect have struck a chord during these trying socioeconomic times.
We have some very big things planned for the home stretch of 2009 and as we pride ourselves on the company we keep, we're profoundly grateful for keeping your company. Have a safe holiday stretch and I'll see YOU on the other side of Labor Day.
Todd Harrison is the founder and Chief Executive Officer of Minyanville. Prior to his current role, Mr. Harrison was President and head trader at a $400 million dollar New York-based hedge fund. Todd welcomes your comments and/or feedback at firstname.lastname@example.org.
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